The coronavirus-induced market bear is here. In fact, it has been wreaking havoc on 401k, IRA, brokerage and other investment accounts for several weeks now. This has kicked investors' investing stress hormones into overdrive. While some investors have fled in droves, others have stood their ground outright. What's the best way to face the bear: fight or flight? Here's our perspective.
Taking flight from the bear
The breaking news headlines of steep market losses have been all over the place in recent weeks. The Dow dropped nearly 3000 points today. The Dow closed down 1000 points. The Dow shed 800 points. Consequently, investors have made drastic investing changes to their portfolios to minimize the financial damage. Some have taken flight; they've sold off securities, and vowed to never return until the markets stop sinking or show signs of a rebound. Other investors, on the other hand, have decided to face the bear and fight. We adopt the latter strategy because it's currently raining gold!
When it it raining gold, reach for a bucket, not a thimble.Warren Buffet
Taking on the bear head-on: our strategy
Whether or not the markets continue to sink or soar, we plan on fighting the bear head-on. Here's how and why.
We're investors, not traders.
We're not in it to make a quick buck; we have a long-term investing horizon. We plan on making long-term bucks!
We will research and invest in high-quality stocks.
Our plan is to invest in great companies. These are companies we think have great fundamentals to weather this storm and the next. Our research criteria include but are not limited to the following:
- Solid earnings
- Strong profitability prospects
- EPS; P/E
- Strong cash flow
- Dividend safety (if picking dividend stocks)
- Strong balance sheet (total debt, cash on hand, among others)
- Strong growth prospects
We continue to believe that timing the markets is a fool's game.
Trying to predict the right time to enter or exit the stock market can lead to costly and emotional investing decisions. There are numerous unpredictable forces that can bring wild swings to stock market indices at any given moment. We subscribe to the school of thought that timing the markets won't make you rich; time in the markets will. We plan on investing consistently, while keeping an open eye on lucrative market opportunities.
"The individual investor should act consistently as an investor and not as a speculator."Ben Graham (American investor)
We won't be afraid to let go of toxic assets.
We've all made investing mistakes. They make us better investors. Most, if not all of us, at one point or another, bought what we thought was a great stock or mutual fund. Sadly, we would later on find out the investment was a bust. We sometimes keep holding on to that security, hoping for a rebound. Oftentimes, the turnaround never happens. As as investors, we must be flexible enough to know when to hang tight or cut our losses. We must never be afraid to part ways with a consistently under-performing investment and re-invest the proceeds in better securities.
We refuse to chase yields.
Dividend stocks are a great way to add income to your portfolio. But investing in a stock because the yield looks attractive can be financially dangerous. Those yields may not be sufficient to justify holding on to a stock whose price continues to depreciate. This pandemic has severely inflated dividend yields. Keep in mind that dividend yield is determined by dividing the annual dividend per share by the [current] stock price. So, a stock that has fallen off a cliff may show an unusually high yield. Once a company starts hemorrhaging cash, the dividend is the first to get cut. For example, Delta Airlines, Boeing, Ford Motor Company have recently suspended their dividend program.
The bottom line
The reality is nobody knows how long the COVID-19 pandemic will last. And certainly, nobody knows whether or not we've hit bottom. But we know for sure that all bear markets have an end. We plan on buying high-quality companies at rock-bottom prices for future price appreciation. The market bear is here. We won't take flight. We will stay and fight because when the dust falls off, and it will, we most likely won't remember the price at which we bought. Instead, we will enjoy price appreciation.
How are you fighting the market bear: fight or flight? Please share your investment strategy with us in the comment section below. Not comfortable taking on the bear on your own? Let our preferred financial advisor help.